Summary of JOIE Article by Daniil Frolov Faculty of Economics and Management, Volgograd State Technical University, Volgograd, Russia. The full article is available on the JOIE website
Sludge is an emerging concept in behavioural economics that refers to various types of perceived frictions faced by decision-makers due to the specific characteristics of choice contexts. According to key thinkers in behavioural science, Richard Thaler and Cass Sunstein, these frictions and the costs related to them prevent people from making good decisions, so sludge needs to be reduced or eliminated (Thaler, 2018; Sunstein, 2019). Sludge is usually associated with mandatory actions that must be performed because they are institutionally prescribed (e.g., annoying administrative procedures and confusing forms to fill out) or are required by the design of choice options (e.g., user-unfriendly online interfaces and shrouded product attributes). Sludge exists in both the public and private sectors. Sludge is everywhere people choose, make decisions, and interact.
Behavioural scientists have found that sludge has much in common with transaction costs, which are often considered the economic analogue of physical friction (Williamson, 1985). Sina Shahab and Leonhard Lades (2024) were the first to shed light on studying sludge through insights from institutional economics: they interpret sludge as a source of subjective transaction costs and provide transaction cost–inspired recommendations for sludge audits. At the same time, such a transaction cost approach to sludge is based on atomistic individualism, which leads to the neglect of many important non-individual factors in decision-making and choice. This limitation also applies to behavioural economics and behavioural science in general, which focus predominantly on individual reasoning and decision-making. Moreover, sludge researchers use a classical paradigm of cognitive science (internalism), which places decision-making exclusively inside the brain and ignores the role of institutions in cognition.
Recently, several behavioural pioneers have come up with the path-breaking idea to frame behavioural research not in individualistic (i-frame) but in systemic (s-frame) terms (Chater and Loewenstein, 2023; Connolly et al., 2025). The shift to the s-frame would allow a change in focus from individual-level to system-level causes of behavioural problems, including ‘the flawed laws and institutions that are, in fact, largely responsible for almost all the problems that i-frame interventions seek to address’ (Connolly et al., 2025: 594). Although the vast majority of behavioural economists do not consider behavioural economics beyond the i-frame, the s-frame perspective is gaining popularity. An s-frame revolution is urgently needed in sludge research as well.
The overall dominant individualistic and internalistic strand of sludge research I call the ‘i-sludge approach’. Shahab and Lades have significantly advanced the i-sludge approach by adapting classical ideas of the transaction cost theory. But modern institutional economics has powerful potential to help sludge researchers move from the i-frame to the s-frame. The key idea of the s-frame for sludge research is that sludge is not only subjective but also social. I propose the ‘s-sludge approach’ based on understanding sludge as a product of entire rule systems, rather than specific burdensome procedures.
In the i-sludge approach, sludge is defined as excessive frictions in decision-making and related subjective transaction costs. However, any rules, procedures, and entire rule systems not only impose transaction costs but also generate transaction benefits. The perception of received transaction benefits affects the evaluation of sludgy choice environments no less than the subjective experience of related costs. Sludge is often a payment for transaction benefits, so excessive sludge reduction is unacceptable. Sludge should be analyzed in terms of both (subjective) transaction costs and (subjectively experienced) transaction benefits.
Sludge is usually associated with certain procedures, e.g., waiting in line, filling out forms, and so on. However, sludge is the outcome of rather complex rule systems that integrate rules, procedures, and processes into a single whole. Moreover, rule systems involve not only end users, but also various other actors with specific interests and perceptions. Different actors have specific perceptions of the transaction costs and benefits associated with certain mandatory procedures. Transaction benefits often justify sludge at the systemic level, whereas at the individual level, sludge may be subjectively perceived as excessive frictions and costs. Therefore, evaluating sludge related to isolated required actions or procedures (subjectively experienced by users only) is a reductionist way. We need a more holistic picture: sludge should be analyzed at both the individual and systemic levels, taking into account the perceptions of all kinds of actors involved in the rule systems.
Although sludge is subjectively experienced by individuals, it is fundamentally a social phenomenon. Therefore, rule systems (as sludgy choice environments) should be considered as social cognitive systems that provide affordances and other cognitive resources for ecologically rational decisions. Individual decision-making strongly relies on others’ knowledge crystallized in context-specific cognitive norms (e.g., shared frames, collective beliefs, social narratives, heuristic rules, etc.). Individuals perceive sludge via cognitive institutions: when faced with sludge, decision-makers use heuristics and other cognitive norms to fit the sludgy environment. The i-sludge approach portrays individuals as rather passive victims of sludge, but in the s-sludge approach, individuals are creative and inventive choice-environment testers and bottom-up institutional innovators. Real people actively seek ways to adapt to sludge, avoid it, or reduce it to an acceptable level: along the way, they jointly co-construct sludge-reducing cognitive norms. Therefore, sludge should be analyzed through the prism of socially extended cognition with an emphasis on dynamic social interactions and collectively reassembled cognitive institutions. Studying the interplay between cognition and institutions should be a top priority in sludge research.
Institutional economists should also examine the concept of sludge more closely. First, sludge provides a broad empirical domain for exploring subjective transaction costs, which remain understudied in transaction cost theory. Second, sludge analysis highlights the cognitive mechanisms underlying decision-making and choice, aligning with the growing interest in cognitive institutions and extended cognition within institutional economics. Third, emotions remain neglected in institutional analysis, but in sludge research, emotional (psychological) costs are recognized as a significant component of subjective transaction costs. Thus, sludge analysis represents a promising field for institutional economics and could give a new lease of life to transaction cost theory, whose development has clearly stagnated.
References
Chater N. and Loewenstein G. (2023). The i-frame and the s-frame: how focusing on individual-level solutions has led behavioural public policy astray. Behavioural and Brain Sciences, 46, e147. doi:10.1017/S0140525X22002023
Connolly D.J., Loewenstein G. and Chater N. (2025). An s-frame agenda for behavioural public policy research. Behavioural Public Policy, 9(3), 593-613.
Shahab S. and Lades L.K. (2024). Sludge and transaction costs. Behavioural Public Policy, 8(2), 327-348.
Sunstein C.R. (2019). Sludge and ordeals. Duke Law Journal, 68(8), 1843-1884.
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Williamson O.E. (1985). The Economic Institutions of Capitalism: Firms, Markets and Relational Contracting. New York: Free Press.